June 13, 2007

Returns from high gas prices

Ten years ago gas prices were around $1 per gallon, and now they are three times that high. There's a good reason, says N.C. State University economist Mike Walden, and even a silver lining.

"There is a pretty simple reason for the jump, and that is that since really since 2000 we have had two countries in the world who really have emerged from not being very dominant or predominant in the world in terms of economics to being very predominant in the world. And those two countries, of course, are China and India, and they are increasing dramatically their use of energy and particularly oil," explains Dr. Walden, a North Carolina Cooperative Extension specialist. "For example, those two countries increased their oil usage two and a half times faster than the U.S. over that time period. And while the world oil supply is growing, it's simply not growing enough to keep up with that demand. So that's the fundamental reason why we have had higher prices.

"Now is there a silver lining?" Walden asks. "Well, actually you can say there is because as we've had countries like China and India move into the world economy and produce more, that has meant lower prices for some of the things that they produce.

"Let me give you two examples: Clothing prices are now off 10 percent; they are down 10 percent since 2000, meaning that all of us who buy clothes are benefiting from those lower clothing prices. And tech product prices –- everything from phones to iPods to computers -– tech product prices are down a whopping 50 percent since 2000," he explains.

"So, yes, you can say we have higher gas prices, but at the same time we have lower prices for some other things."